More oil sands in the pipeline than the future will want: IEA

Barry Saxifrage
Alberta has already approved far more oil sands production than the world will want according to the International Energy Agency (IEA).

If the IEA is right, it means an end to new oil sands project approvals and probably an abandonment of some that have already been approved. It also means Canadians might want to re-evaluate the need for bitterly controversial new tar sands pipelines — like Keystone XL, Northern Gateway and the Transmountain twin.

Let’s take a look at some of the details.

The IEA has arguably the world’s most detailed and comprehensive database on global energy. Their flagship annual report — World Energy Outlook — is an essential resource relied upon by many of the world’s major economies, as well as global energy industries. The IEA’s 2010 World Energy Outlook report specifically analyzed future oil sands demand under several possible energy scenarios. In every scenario, global demand for oil sands in 2035 was well below what has now been approved.

What makes this analysis so remarkable is that the IEA is a friendly proponent of the oil sands. They open their report saying “production from Canadian oil sands is set to continue to grow over the projection period, making an important contribution to the world’s energy security.” No greenie tree-huggers there.

But the IEA are also hard-nosed economists who include in their analysis the reality that high production costs coupled with high carbon emissions will hurt the competitiveness of the oil sands in the future. They conclude that there are already more oil sands projects in the pipeline than will be needed to supply future demand.

My chart below details this oil supply and demand mismatch:

The red column shows that already approved projects will be able to deliver 5.2 million barrels of oil a day (mmbpd). Additional projects to deliver another 3.8 mmbpd are working towards approval. Both the industry and the Alberta government say they are planning for 5.0 mmbpd to be flowing out the taps by 2030, with more supply coming soon after.

For comparison, my chart shows the high-end and low-end of the IEA demand scenarios for the year 2035.
Lowest demand scenario

In the most hopeful IEA scenario, humanity limits climate change to 2 degrees Celsius — which is more than double warming so far. Two degrees is the threshold above which most climate scientists say an overheating climate becomes dire and dangerous for us.

As US President Obama warned in his acceptance speech last week, the “destructive power of a warming planet” is a growing threat that must be addressed.

In this scenario, the IEA says global demand for oil sands will be 3.3 mmbpd. Over a third of the 5.2 mmbpd the industry already has approval for, and is planning to produce, won’t be economically viable.

In fact future demand can be met almost entirely with currently producing projects plus those in construction. About 90 percent of projects already approved but not being built yet won’t be needed.
Highest demand scenario

The IEA’s most pessimistic scenario has humanity choosing a dirty energy path leading to a climate “catastrophe” of 6 degrees Celsius of global warming. As the IEA said when releasing their report: ” Everybody, even the schoolchildren, knows this is a catastrophe for all of us.” (see: Climate “catastrophe” of 6C dead ahead: IEA.)

But even in this dystopian future of climate misery the IEA says that only 4.6 mmbpd of tar sands oil will be economically viable. This is still well below the industry game plan of 5.0 mmbpd by 2030, rising to 6.0 mmbpd by 2035.

However you slice it, it is looking increasingly likely that demand for Alberta’s oil sands will fall well short of even today’s commitments. The endless growth scenario is looking more like a long walk on a short pier. Albertan’s would be wise to protect themselves from this risk while they still can.
MIT agrees

A study by Massachusetts Institute of Technology (MIT) titled “Canada’s Bitumen Industry Under CO2 Constraints” backs up the notion that Alberta’s oil sands will struggle to compete in a low-carbon future. Its conclusions are blunt:

“The niche for the oil sands industry seems fairly narrow and mostly involves hoping that climate policy will fail…”

“When there is substantial participation of developing countries in a climate policy there appears to be little role for Canadian oil sands…”

“… with CO2 emissions caps implemented worldwide, the Canadian bitumen production becomes essentially non-viable even with CCS technology.”

The threat of over-capitalizing the industry leading to many billions in stranded assets and punishing debt burdens is real. For a glimpse of such a future the Albertans can just look across the border at what is happening to the USA coal industry.
Fall of the king

As I wrote recently, King Coal is struggling to avoid sliding off just such a carbon cliff. Their plans for rapid growth have quickly morphed into collapse. (see: Rapid collapse of USA coal holds warning for tar sands.)

Major US coal companies have seen their stock prices get slashed in half this year. Billions in assets are being stranded or sold at pennies on the dollar. Credit ratings are plunging as debt load from boom time dreaming is weighing down balance sheets. Energy economists at the US government’s Energy Information Administration (EIA) determined that US coal demand would virtually disappear under moderate climate policies. A modest and rising carbon price would see a 92 percent decline in coal burning by 2035.

It is global warming, stupid.

America’s coal industry ignored the basic facts that climate change is real, it is dangerous and therefore carbon emissions will become ever more restricted and expensive in the future. Despite clear warnings from top energy economists, the American coal industry gambled big money on expansion plans even as they were plunging headlong into the low-carbon future. That hubris and swagger is now looking like a losing bet for both its shareholders and the coal communities.

Instead of taking the risk seriously and using the value in their resource to fund a graceful transition to a more sustainable future economy, the players on the stage shook their fists in defiance against the coming storm until it literally crashed over them.

The reality is that high-carbon fuels, no matter how abundant, face a very challenging economic future as climate change tightens its grip on our lives. Of all the forms of coping, in the end denial is the least successful.

For decades climate scientists have warned that climate change was coming and it would be nasty if we didn’t act.

We didn’t. In recent years more and more of the world’s top energy economists are starting to warn in very stark language that the dirtiest of our fossil fuels are incompatible with a safe climate system.

We are facing a choice: either we leave the dirtiest fuels in the ground or we inject our climate system with so many “steroids” that increasingly chaotic and extreme weather will threaten our food supply, water supply and trillions of dollars in infrastructure.

The extreme weather we have experienced in recent years comes after just 0.8 C of warming. The IEA says our high carbon path will lead to nearly eight times that much — 6.0 C of warming — during the lifetime of today’s kids.

Yet even on that miserable path we don’t need all the tar sands we have already approved.
Sell by expiry date.

Perhaps, the game afoot in Alberta and Ottawa is to off-load on foreigners as much of our tar sands deposits and infrastructure as we can before the expiry date.

Or perhaps, like King Coal, dot-com investors and the recent Romney campaign, the people in charge are just too invested in the dream to accept any unpleasant reality that spoils their narrative. Perhaps Alberta and Ottawa really will fail to act on the clear and present danger. If so, we will all be forced to wait and watch as unpleasant reality crashes the party and we are left to pick up the pieces.

B.C. pipelines shouldn’t proceed: Mulcair

VICTORIA – Neither of the oil pipeline projects proposed to cross B.C. should go ahead unless the federal government’s environmental assessment system is restored after Conservative government amendments, NDP leader Thomas Mulcair said Tuesday.

Speaking to reporters on a campaign swing to back Murray Rankin’s run in a Nov. 26 by-election, Mulcair said the Conservative government’s proposed exemption of most lakes and rivers from federal environmental scrutiny is added to earlier changes that weaken the process too much for it to be reliable.

Both Mulcair and B.C. NDP leader Adrian Dix have strongly opposed Enbridge’s Northern Gateway oil pipeline planned from Alberta to Kitimat. Dix has refrained from making a similar call on Kinder Morgan’s proposal to twin the TransMountain pipeline from Edmonton to Burnaby. But Mulcair said there is no way such an expansion could proceed with the rules the way they are.

“To the extent that you can’t even discuss these things in the absence of a thorough, credible, complete assessment process, you can’t therefore even discuss an increase in flow and an increase in tanker traffic, because the condition is carrying out a thorough examination,” Mulcair said. “And the Conservatives have gutted that. They’ve rendered it meaningless.”

Rankin, a lawyer who advised the B.C. NDP on its plan to withdraw B.C. from the joint review of Northern Gateway, is running in a by-election to replace retired Victoria MP Denise Savoie. Rankin agreed with Mulcair that the Kinder Morgan proposal shouldn’t proceed with the current system, adding that there has not yet been a formal application for the TransMountain expansion.

Mulcair said the most damaging change is making assessments subject to cabinet approval, so even if an expert panel rejects a project, it can be overruled.

Prime Minister Stephen Harper has insisted that Northern Gateway and other projects will still be approved or denied on scientific grounds only.

When federal Transport Minister Denis Lebel announced changes to the Navigable Waters Protection Act in October, he said the 1882 legislation had greatly overextended its original intent. Lebel cited a lake near Edmonton that required 80 separate federal assessments to build boat docks for cottages.

Other environmental laws still apply to protect lakes and rivers, whether they are navigable or not, he said.

Kinder Morgan Schedule of Public Info Sessions

Kinder Morgan “Information” Sessions Locations and Dates

Date Event
13 November 2012 East Vancouver Info Session – Pacific National Exhibition (PNE), Hastings Room (2901 East Hastings Street) – 5pm-8pm
15 November 2012 Downtown Vancouver Info Session – Harbour Centre, Segal Hall (515 West Hastings Street) – 5pm-8pm
17 November 2012 West Point Grey Info Session – Aberthau Mansion (4397 West 2nd Ave) – 5pm-8pm
20 November 2012 Coquitlam Info Session – Centennial Secondary School, Courtyard (570 Poirier Street) – 5pm-8pm
21 November 2012 Surrey Info Session – Ellendale Elementary School (14525 110A Avenue) – 5pm-8pm
November 24 2012 Burnaby Info Session #1 – Stoney Creek Community School (2740 Beaverbrook Crescent) – drop in from 1pm-4pm

Tsleil-Waututh Nation Media Advisory

The Tsleil-Waututh Nation is encouraging the public to attend information sessions on the Kinder Morgan Trans Mountain pipeline expansion in hopes that most of those who attend will be critics of the project.

But Tsleil-Waututh members say they will keep their distance while the information sessions are under way. The Tsleil-Waututh has decided to keep its distance because it expects to be consulted by the federal government on the $4.1-billion project.

It deems itself a sovereign government with constitutionally protected rights and title. Participating with Kinder Morgan in anything that would be deemed as consultation with respect to the pipeline would be counter to that position, it says.

“We, as a nation, expect to have a meaningful consultation – government to government,” said Carleen Thomas, an elected council member of the Tsleil-Waututh.

“We are clear that the government cannot delegate this obligation to consult to third parties such as Kinder Morgan.”

Burnaby Residents Opposed to KinderMorgan Expansion

BROKE urges the public to not Sign in at Kinder Morgan “information” sessions and to not fill out the Kinder Morgan consultation forms. These sessions are not public consultations or part of the government process.

After attending an info session Len Laycock said he found the public hearing to be more like a “sales centre for condos.” Except in this case they are trying to sell you a toxic pipeline.

What Obama should do now: Tackle climate change

Step up, Mr. President: No more worries about reelection. Now you can tackle those issues that you said had to wait for your second term. Outlook has given you a head start on how to address immigration, climate change, banking reform and racial inequality.

It will be painfully easy to tell if President Obama is going to take a serious stab at doing something about climate change in his second term: The purest, starkest test he faces will be the proposed Keystone XL pipeline from the tar sands of Canada to the Gulf of Mexico.

Last fall, his stance on the Keystone project exemplified his waffling and contradictory climate policy. Faced with a solid front of the nation’s foremost Earth scientists explaining that tapping Canada’s tar sands for oil was a climate disaster, and confronting the biggest in-the-streets environmental movement in decades, the president delayed for a year a decision on whether to grant the required border-crossing permit. That put the northern portion of the pipeline on hold until after the election, but it allowed construction of the southern half to go forward — accompanied by civil-disobedience protests in East Texas.

And what’s happened in the intervening 12 months? America has gone through the hottest year in its history, with an epic drought that raised world grain prices 40 percent; the Arctic continued to melt at such a shocking rate that NASA scientist James Hansen declared it a “planetary emergency”; and Hurricane Sandy washed ashore with one of the lowest barometric pressures ever recorded north of Cape Hatteras. As the cover of that radical rag Bloomberg Businessweek put it in large letters: “It’s Global Warming, Stupid.”

Meanwhile, activists on the Canadian side have robbed the administration of the only real argument for proceeding with Keystone: They’ve rallied to effectively stop construction of the proposed Northern Gateway pipeline from Alberta to the British Columbia coast, meaning that the tar sands tycoons can’t simply send their oil off to China by some other route.

Those oil barons, certain they will prevail, have kept pouring money into Washington. Just last month, a New York Times profile of a presidential confidante, Anita Dunn, revealed that her lobbying firm was on the Keystone payroll. In other words, in Washington terms, the pipeline is still wired. One oil executive, the morning after Tuesday’s election, was quoted as saying, “We expect it will be approved.”

If that happens, it will mean the president doesn’t understand that his legacy requires dealing with climate change — and that dealing with climate change requires leaving carbon in the ground. There are lots of other actions that will be necessary, too: A serious tax on carbon, for instance, has long been the sine qua non of real progress. But that requires getting House Majority Leader John Boehner and the House Republicans on board.

The truth is, we’ve got to do it all, and it will be hard, harder than anything else the administration is considering, since it runs straight up against the richest industry on Earth.

Maybe the president was being serious when he promised in his victory speech, to one of the loudest cheers, an “America not threatened by the destructive power of a warming planet.” Maybe he understands that we’re ready for action — exit polling showed that 42percent of Americans said the aftermath of Hurricane Sandy was an important factor in their choice. If so — if he really gets that this is the legacy issue of all legacy issues, one that stretches out into geologic time — then he’ll listen to the scientists and not the lobbyists. Keystone is his first best chance to help keep serious quantities of carbon out of the atmosphere.

That pipeline, if built, will carry the same amount of oil saved by his auto mileage standards. If it’s approved, it will mean, for those of us who care about the environment, that his second term canceled out the one best thing done in his first. If he blocks it, he will emerge as a true champion, with an inspired movement behind him ready to take on the next, even harder, battles.

Bill McKibben, an author who has written extensively on environmental issues, is the Schumann distinguished scholar at Middlebury College and the founder of, a climate-change advocacy campaign.

Al Gore to argue link between dirty energy and dirty weather

Former U.S. Vice President Al Gore speaks during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nevada May, 9, 2012. SALT brings together public policy officials, capital allocators, and hedge fund managers to discuss financial markets.

OTTAWA – Former U.S. vice-president Al Gore will try to make the case next week that “dirty energy” is contributing to what he calls “dirty weather” events around the world.

“Hurricane Sandy is a disturbing sign of things to come,” Gore wrote in a recent opinion piece in the Huffington Post. “We must heed this warning and act quickly to solve the climate crisis. Dirty energy makes dirty weather.”

Gore will deliver his message on Nov. 15 through a new presentation in New York as part of his Climate Reality Project, to be broadcast on the Internet. The initiative was launched last year as a 24-hour event with slide-show presentations from around the world, highlighting the latest news about human influence on global warming.

Maggie Fox, the CEO of the project, said that although scientists cannot link global warming to specific storms, there is evidence warmer temperatures and oceans make storm systems stronger, leading to devastating impacts such as those caused by Sandy in the United States and Canada.

According to a 2010 analysis published in the Proceedings of the National Academies of Science in the U.S., nearly 98 per cent of the most-active climate change scientists in peer-reviewed journals support evidence that human activity is causing global warming.

This evidence says that heat-trapping greenhouse gas emissions – mainly from the burning of fossil fuels such as oil, gas and coal – and land-use changes are responsible.

“This is weather that is created by dirty energy, so it seems really important to name it,” Fox told Postmedia News. “Our goal is to build both grassroots and communications tools to empower people to see the reality.”

She said the project deliberately scheduled its event to be held after the U.S. elections to push it onto the agenda of the president, a few weeks before an annual United Nations climate change summit.

But she also noted that the superstorm, and other recent extreme weather events, droughts and wildfires, helped make it an issue that voters considered in the last days before the Nov. 6 vote.

In his victory speech Tuesday, President Barack Obama said that Americans want their children to live in a country that “isn’t threatened by the destructive power of a warming planet.”

The Climate Reality Project event is slated to begin on Nov. 14 at 8:00 p.m. Eastern Time, ending one day later with Gore’s new slideshow from New York. In the fourth hour, presenters will look at the impacts of climate change and recent events in British Columbia and the West Coast of North America. They will also discuss what’s happening in the Arctic and the world’s oceans over the next two hours.

Canadian participants who are part of Gore’s project also have several different presentations on climate change scheduled in the coming days in various cities.

Environment Canada recently offered its own minister, Peter Kent, a slideshow that highlights billions of dollars worth of losses caused by climate change, suggesting that the Harper government could discuss these impacts in public.

Fox said Gore’s presentation would also have some positive aspects that explore opportunities to reduce dependence on dirty energy and help stabilize greenhouse gas pollution in the atmosphere.
© Copyright (c) Postmedia News

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Alberta bitumen takes to the tracks

Pipeline bottlenecks and discounted heavy oil have producers purchasing a train ticket to move their product to market.
North American railroads carry an estimated 400,000 barrels of crude a day – equal to a new, large pipeline.In a market where heavy crude sells at a huge discount and pipeline space is at a premium, one oilsands producer has found a way around the bottleneck.Southern Pacific Resource Corp., which began trucking out initial production from its new McKay Thermal Project three weeks ago, will open a dedicated rail terminal in a few weeks just south of Fort McMurray and ship its product in leased tanker cars via CN Rail all the way to Natchez, Miss.

From there, it’s just a short barge ride down the Mississippi River to one of the eight refineries in Louisiana, where the crude will fetch $20 to $30 a barrel more than it could at the congested terminal hub in Cushing, Okla.

While Canadian and U.S. railways are scrambling to meet demand, opening small terminals close to production in locations such as the Bakken area of southern Saskatchewan and North Dakota, the Athabasca oilsands have not been part of the rush. Until now.

“I think Canadians are going to have a much more difficult time getting crude to market than we may expect and that’s because of the delays in the (Northern) Gateway and Keystone (pipelines),” said Byron Lutes, chief executive of Southern Pacific.

He said that using the CN line will demonstrate “another safe and viable alternative for transporting bitumen.”

Unlike pipelines, that means no public hearings and no environmental protests.

Railways have been carrying oil for a century and were the only way to move crude before major pipelines were developed beginning in the 1940s.

But the rail option isn’t cheap and wasn’t viable until two things changed.

First, the price spread widened after 2010 when bitumen production began to climb faster than pipelines could be built to refineries in the Midwest and Gulf of Mexico. So not only are bitumen prices in Alberta low, the prices of all crudes stored at Cushing, fell in comparison to the West Texas Intermediate (WTI) price. That gap, or differential, is now about $22, but has been much higher. Plus, heavy crude can trade higher than WTI on the U.S. Gulf Coast.

Second, the demand for diluent that must be added to bitumen to make it flow like oil through pipelines has climbed. Producers are paying more for the varsol-like diluent than they get for the bitumen – called dilbit when thinned with 30 per cent diluent.

Southern Pacific estimates it will pay $31 a barrel to move its product to a Louisiana refinery by rail and barge compared with $8 for pipeline shipping.

But once the $20 differential is added and one considers the fact that Southern Pacific needs just 20 per cent dilu-ent for rail transport – and is able to import less-expensive U.S. diluent in the empty cars on the return trip – the deal makes economic sense.

To get a clearer picture of the size of the growing rail option, consider that this year in the U.S., railroads will carry 340,000 bpd. With the estimated 60,000 bpd in Canada, that adds up to 400,000 bpd – equal to a new, large pipeline.

But not even railroaders expect the rapid growth to continue forever and the companies must weigh how much to invest in oil-hauling operations against the risk future pipelines will move that crude.

“It’s really hard to gauge the long-term prospects of demand because a lot of this is being driven by lack of pipeline capacity,” David Tyerman, a Canaccord Genuity Inc. analyst in Toronto told Bloomberg. “Even the rail industry is trying to temper its expectations because it doesn’t want to build its business plans around something and then have that not happen.”

As recently as two years ago, CN didn’t haul crude. It now projects moving 30,000 carloads in 2012. This week it announced its latest project with partner Arc Terminals LP to build an off-loading facility in Mobile, Ala., for crude destined for Gulf Coast refineries.

Canadian Pacific was moving 500 tank-car loads a year in North Dakota in 2009, but now expects an annual rate of 70,000 carloads – 46 million barrels by early 2013 throughout its system.

“Canadian Pacific believes rail and pipelines are complementary, with rail having a permanent role to play as a transportation solution for energy producers,” said spokesman Ed Greenberg, who is based at the company’s U.S. headquarters in Minneapolis.

“Rail is a flexible option for transporting crude oil, and rail is scalable, which allows CP to scale its operations” to match customer needs, he added.

The firm behind Southern Pacific’s project is Calgary-based Altex Energy, which at one time was promoting a pipeline between Alberta and Texas.

It is now building rail terminals, an idea that appeals to small firms that don’t want to sign 20-year pipeline contracts. With its new project, Southern Pacific is slowly ramping up.

McKay expects to be producing up to 12,000 barrels per day of bitumen and a 6,000 bpd expansion is being planned.

Under the contract with Altex, CN and Genesis Energy in the U.S., more than 12,000 carloads each year will be heading to Mississippi in the 500 rail cars Southern Pacific has leased.

This would equal about 10 crude unit trains per month on a two-week return trip. The CN line runs through the Edmonton region.

Initially, the bitumen will be trucked to Southern Pacific’s new terminal, but it is hoped a rail spur might eventually be built to the McKay site, which is 45 kilometres northwest of Fort McMurray.

The target for Southern Pacific and perhaps other small steam-assisted gravity drainage (SAGD) oil producers is the Gulf Coast, and in this case, the lower Mississippi, where refineries can handle two million bpd of crude – including 400,000 bpd of heavy crudes like Alberta’s bitumen.

Current heavy crude suppliers are mainly Mexico and Venezuela, but imports have been declining. As well, some refineries have not been running at capacity .

Dcooper@edmontonjournal. Com
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